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Some somewhat more coherent notes on the Greek crisis: debunking IMF propaganda (2)

by talos Tue May 25th, 2010 at 05:24:06 AM EST

I was thinking about how to structure the second installment of the saga of this unfolding disaster (part 1 here) that has been inflicted on the Greek working population, part of the development of the Great Crash of 08. There is a lot to be highlighted, especially concerning bogus data and statistics circulating among world media and organizations, that are then used to "explain" the inevitability of the neoliberal shock therapy which Greece is being subjected to (and which is I am afraid a first test for far wider application in the continent of similar shocks).

The IMF fortunately, I see, has helped me out a bit on this, by issuing a compilation of bad statistical urban legends and hearsay on the Greek crisis and endorsing it as policy background. In its web-site, the Fund has thus created an FAQ section on the Greek crisis. This is a document riddled with outright lies and strategically propagated half-truths and obfuscations, along with wishful thinking and handwaving serious questions aside, to an extent impressive for an official document, coming from one of the pillars of the world economy. It is the ideal place to start to tackle the (already dwindling in the face of the globalisation of the Euro crisis) moralizing and the lies that have been used to "explain" why working Greeks should suffer the economic equivalent of a nuclear attack. Let's check out some of the claims made to see how credible the IMF's analysis of the statistical and factual reality in Greece is...

Promoted by DoDo


1. Right off the bat the IMF starts with a much-repeated, yet misleading, claim:

"Greece is highly indebted and lost about 25 percent of its competitiveness since Euro adoption

It is far from obvious how the IMF measures competitiveness, the FAQ section is not referenced at all, and it's not clear how this quantification arises or what does it mean. Erik Jones, writing in Euro Intelligence, was already debunking part of the competitiveness mythology, as pertains to labor costs, in March:

...What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees.  Moreover, we should look at their performance across the European marketplace as a whole.  By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95.  Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.
...Using national accounts data for relative real unit labor costs in manufacturing, Greece goes from 100 in the year 2000 to 87 in 2008.  Over the same period, Germany goes from 100 to 90.  It is hard to see how Germany comes off better in the comparison.
...Even if Greece is not suffering in terms of manufacturing, the high real incomes that Greek employers are doling out must surely be hitting the bottom line in the service sector, shouldn't they?  Again, that's hard to see in the data. Total compensation per employee was 53.8 percent in Greece and 57 per cent in Germany...

Furthermore the "since Euro adoption" part is misleading. Greek productivity was surging until 2007, after that year, influenced of course by the global crisis, and affected by real fiscal imbalances (about which more later) productivity (and competitiveness, however defined) fell faster than the Dow Jones average after a computer glitch, but that was surely not a uniquely Greek phenomenon.

In fact Greece was receiving praise by the IMF itself for its improved competitiveness, singled out as the most successful economy in Southern Europe.

Source: IMF

So, much of the decline, in many areas, was a result of Greece not responding successfully to the global crisis. The "joining the Euro" part is thus, I repeat, misleading. And the whole story is repeated elsewhere in the document.

2. Under the same question the IMF then makes a flatly false statement:

In past years, Greece's public sector spending grew, while revenue fell. Then the global recession hit and economic activity slowed and unemployment rose. This exacerbated the fiscal situation.

Well no. The evolution of Greek public sector spending was *not* growth followed by a dip as the Greek economy was hit by the global recession. In fact between 2002 and 2006 public expenditure shrank and started rising precipitously, only after the global recession hit... but then so it did almost everywhere...

Greece / Eurozone public revenues as % of GDP. Source: Eurostat



Greece / Eurozone public expenditure as % of GDP. Source: Eurostat




Revenue was pretty much stable at rather low levels until just last year when indeed, it did drop.

3. Fluffy nonsense:

A significant fiscal adjustment is needed in Greece. The program is designed so that the burden of adjustment is shared across all levels of society, while protecting the most vulnerable groups.

Bollocks. According to most reports in the Greek press, the lower pensions are being lowered still and then will remain steady (or decline) at these below poverty levels for the next few years. The minimum wage is effectively being driven down.  So are disability pensions. At the same time while tax-evasion is being targeted, employers are receiving new-found "freedom" from labor costs.

The government's program also includes pro-growth policies to reform such crucial sectors as tax administration, the labor market, the health sector, and the management of public finances.

None of these is strictly speaking a pro-growth policy. They are trying to clean up parts of the tax collecting system (although with limited resources, a diminishing budget - due to the cuts - no possibility of hiring tax inspectors and public service auditors etc.). The labor market is the one area they have been "pro-growth": its being third-worldized.
These measures will open up the economy to opportunity and make the economy more competitive, transparent, and efficient. This in turn will help restore confidence of investors and the markets. The ultimate goal is more dynamic and durable growth.

... many years from now, by which time the basic salary will be around 100 Euros or something. Hurray! Although it is probably true that investors and markets, will really like the new Greece.

4. And we thus move on to yet another falsehood:

The fiscal measures include: a reduction of public sector wages and pensions--something which is unavoidable given that these two elements alone constitute some 75 percent of total (non-interest) public spending in Greece.

The 75% figure is completely false AFAICS and we've seen why here: These are the Eurostat numbers (p. 15), and this is the Greek Ministry's of Finance planned 2010 budget [in Greek, see p.11, budgetary expenditure]. At most these add up to 45% of total (non-interest) public spending in Greece. So maybe this wasn't really "unavoidable".

5. The response to the "but isn't this the bad ol' IMF doing its destructive work again":

Q. Is the range of conditionality in the Greek program a return to the more traditional IMF "austerity" measures of the past?
No. There are three key differences:
  • This program is focused on Greece' two key problems: high debt and a lack of competitiveness. Conditionality is very much focused on these issues.
  • The Greek authorities have strong ownership and leadership and it is their program.
  • The program includes measures to protect the most vulnerable, which are a critical component to effective implementation.

Well:

  1. The Greek authorities claim that they have no such ownership and that they cannot draw "lines in the sand", except with great difficulty, where the measures are concerned. In fact according to the media the Greek government is under enormous pressure from the IMF/EU Commission to further transform the pensions' system. One party is lying.
  2. I have not noticed any of these "protective" measures being reported. What, they'll bring in UNICEF when child mortality rises?

6. The IMF insists that debt restructuring is not in Greece's interest, and that it will not help "Greece's capacity to grow". I wonder how mass migration of the young and talented will help "Greece's capacity to grow", a trend that existed already but now seems on the verge of reaching tragic proportions, or how is the deepest recession since Nazi occupation, conductive to "Greece's capacity to grow", unless they mean reaching such depths of poverty that Greece can compete with Vietnam in real wages, and Foxconn finds it profitable to move its factories and labor practices from mainland China to Greece. How will deep cuts in education help "Greece's capacity to grow"? How will an organized restructuring not help Greece's capacity to grow, if the alternative is an economic collapse and a recovery prospect based on wishful thinking and a best case scenario regarding world growth? How deep will the recession have to be this year (let alone the next and the one after that) before the IMF "revises" its outlook? Because we certainly are not heading toward a 4% of GDP recession: "market sources", are already whispering double digits.

7. Regarding tax revenues the IMF states that:

Additional specified tax measures amount to about 4 percent of GDP. The government is proposing measures to overhaul the tax system, including a progressive tax scale for all sources of income, taxing luxury goods, higher taxes for the wealthy, and higher taxes on tobacco and alcohol.

That's all fine and well, but we're already seeing the failure of this policy to raise indirect taxes. Consumption has already dropped so much that the new taxes on cigarettes are not expected to raise revenues at all, while enriching cigarette smugglers. The five point increase in the VAT tax will mean less revenue for the government if, as it seems certain, consumption drops by more than 8% this year.  Anyway it seems ironic that the IMF under its explanation for the increase in VAT mentions that "The government has proposed a range of tax measures with the aim of spreading the burden of adjustment more fairly". Obviously huge increases in indirect taxation, do not help in tax fairness, eh?

8. The IMF explains that the wage and pension cuts the government is proposing

...will bring Greece in line with other, more competitive, economies. The extra two months salaries--the so-called "13th and 14th" payments--are unsustainable and do not exist in many other countries. Nor is the low retirement age that begins around 50 for some groups in line with life expectancy.

This is highly misleading to the point of dishonesty:
  1. The 13th and 14th payments are just a particular way to temporarily distribute annual income. The only measure of wages that is meaningful is on a yearly basis. According to the European Economy Statistical Annex of 2007, Greece was second from the bottom in average wage purchasing power in the EU.

  2. Some people do retire early, as early as 41. These are few. Very few. Mostly in the Armed Forces (where they can retire and then get another job legally, meaning they continue contributing to the system) and the police. Also until recently women working in the public sector with underage children qualified for early retirement at 50+. But the average retirement age in the economy as a whole is 61 years. These reforms pretty much push full retirement for many people at around 67. Mentioning that some retire as early as 50 and stopping at that, is monstrously misleading. This piece of misinformation has been repeated ad nauseam around the global media (i.e.). This piece of disinformation is actually repeated again in the document:
    The pensionable retirement age for some groups beginning at around 50 is out of line with life expectancy in Greece--and out of line with the rest of the Euro zone countries. Given the aging of the population, such a low age for pensions, coupled with generous coverage ratios to last earned income, has put far too much strain on Greece's public finances.

    This in a country where 28% of the over 65-year-olds are living under the official poverty line...

9. The IMF claims that:
The authorities recognize that the public sector in Greece has become too large and costly for the economy. In fact, there is no clear data on exactly how many people are working in the public sector

This is again not really true. The public sector amounts to 40% of GDP, according to the CIA (I couldn't find directly comparable numbers for the rest of the EU), while "The share of public sector GDP in total GDP is about 43 percent in the UK and about 54 percent in France".

The data on how many people work in the Public sector exactly might not be all in, but we do have a rather good ballpark estimate. It is 14%, "very close to the OECD average" as the OECD itself notes. The OECD is not including, non-permanent seasonal and temporary employees which are between 300.000-500.000 in a given year (mostly underpaid and underinsured), and together both categories add up to something close to 20% of workforce (which is around 5 million). This is hardly a bloated public sector. It is inefficient, corrupt and poorly organized, yet surely its reduction (which is also a Greek government/IMF project), as opposed to its reinvention, reorganization, repair etc will only have the effect of ruining the few crumbs of a social safety net that do exist. That both the IMF and the Papandreou government see this as something desirable, speaks volumes about their ideology.

10. Handwaving on the most crucial question, is not a good sign that the Fund is seriously concerned about the future of the Greek economy or Greeks in general:

Q. With lower revenue and a stagnating economy, how will Greece begin to grow again?
The government's program recognizes, and takes into consideration, that the difficult fiscal adjustment will initially have a negative effect on growth.
But with effective implementation of the fiscal and structural policies and the support of the Greek people, the economy will be far better placed to generate higher growth and employment than in the past.

Meaning: We know the effect on growth will be somewhere from horrible to catastrophic, yet if we all get together and engage in wishful thinking we will do what has never been done before and get Greece to the neolib fantasy of prosperity, with third world wages and most of its trained youth living somewhere far away. This is based on pretty much the sort of magical thinking that has made the IMF synonymous with disaster. So if our best case scenario holds up, regarding the world economy, and if Greece is very, very lucky, it might return to 2009 levels of GDP by 2025 or so. Impressive.

11. As final proof that the people who wrote the FAQ are kidding, you have their take on unemployment:

Because of the crisis, employment is already high at about 10-11 percent. Initially, there will be an increase in unemployment and the next two years will be difficult - unemployment could rise to about 15 percent. However, as strong medium-term fiscal measures and productivity-boosting reforms kick in, the economy will become more competitive, transparent, and efficient. With confidence returning, Greece will emerge from this experience in better shape than before, growth will return and employment will pick-up.

This 15 percent is utter fiction. The labor minister even before the IMF/Commission demolition combo landed in Athens was projecting unemployment rates around 17% by the end of the year. 15% is laughably low. Already in May unemployment had reached 12,1 percent up from 9,1 last May, and on a steep slope towards the stars. And this is pretty much before the austerity measures kicked in. I'm willing to bet that we will be lucky to have 15% unemployment by the end of this year. Net year we will most probably reach 20% or more. Among young people 18-24 unemployment is already at a staggering 34% this month.

12. Final question:

Q. Has any country undertaken this level of fiscal adjustment before?
It is an unprecedented adjustment, but it is feasible, and the government is committed to getting the job done.

Feasible if one believes this absolutely speculative and factually false account given by the IMF.  But anyway, this is an admission that Greece is the first guinea pig, an experiment to see if any country can survive the IMF treatment without joining the Third World.
Greece in particular will end up having transitioned from a hell of an inefficient and corrupt social model to no social model at all...

Finally:
The fact that the IMF has been so clumsy in its description of the Greek situation (and so unrealistic on the effects the policies it is imposing will have, or are having), either reveals the quality of the analysis of the Greek economy that has driven the IMF's/EU advice - a bad sign surely, or demonstrates that the IMF is barely covering up for decisions of which it is only an implementation instrument. Alternatively they don't care enough to be serious...

Display:
But anyway, this is an admission that Greece is the first guinea pig, an experiment to see if any country can survive the IMF treatment without joining the Third World.

Has anyone mentioned Latvia in Greece?

either reveals the quality of the analysis of the Greek economy that has driven the IMF's/EU advice - a bad sign surely, or demonstrates that the IMF is barely covering up for decisions

Or a combination: with both leaders and bureaucrats totally indoctrinated, they don't check the figures and rhetoric they read in the business press...

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue May 25th, 2010 at 04:18:23 AM EST
DoDo:
an experiment to see if any country can survive the IMF treatment without joining the Third World.

Has anyone mentioned Latvia in Greece?

Some Balkan humour.

Mujo (stereotypical Bosniac) comes back from a trip to Sweden and tells his friend "man, they're 30 years behind us in Sweden". "How so?" asks his friend. Mujo replies "Life is still good there".

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue May 25th, 2010 at 04:24:36 AM EST
[ Parent ]
ROTFL!

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 25th, 2010 at 04:27:04 AM EST
[ Parent ]
Yes, you are right. And I speak of "countries" in general which is obviously wrong. I was thinking of eurozone countries, and somehow I think Latvia (and Hungary, no?) didn't begin their history as IMF victims, as models for the whole EU. That is a more recent development...

It's scary though when the experts don't even bother check the figures of the economy they are supposedly fixing...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 06:38:09 AM EST
[ Parent ]
I was thinking of eurozone countries, and somehow I think Latvia (and Hungary, no?) didn't begin their history as IMF victims, as models for the whole EU.

OK, no Eurozone. I didn't think of Hungary as analogy, because its 'reforms' crisis is a much longer story (preceding the Global Financial Crisis), the "shock level" was lower, and has rarely been touted as example. But Latvia was for long touted as flat tax wonderland, with wonderful deficit and productivity and foreign investment situation, touted as example to follow even in the EU-15; then it unravelled, and the IMF came in, while practically the entire second language speaking youth went to work elsewhere in the EU, then a new government was elected that again did more of the same...

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue May 25th, 2010 at 06:56:19 AM EST
[ Parent ]
the neoliberal shock therapy which Greece is being subjected to (and which is I am afraid a first test for far wider application in the continent of similar shocks).

Partial reposting, with my emphasis:

Klaus Ernst: Das waren Scheinverhandlungen (21.05.2010) | Interviews | News | General-Anzeiger Online - BonnKlaus Ernst: Those were fake talks (21.05.2010) | Interviews | News | General-Anzeiger Online - Bonn
GA: Gregor Gysi hat gesagt, ihm sei egal, wer die Forderungen der Linken im Bundestag zum Gesetz mache. Stimmt die Linke dem Regierungsentwurf zu? GA: [Left Party faction leader in the German federal parliament,] Gregor Gysi said that it doesn't matter to him who makes the Left Party's demands law in the federal parliament. Will the left Party support the government proposal [on the Euro aid package]?
Ernst: Wir können dennoch nicht zustimmen. Wenn in der Folge auch des deutschen Versuchs, den Euro zu retten, andere Euro-Staaten wie Griechenland gezwungen werden, drastischen Sozialabbau zu betreiben, Renten und Gehälter zu kürzen oder die Mehrwertsteuer zu erhöhen, dann sind wir nicht dabei. Eine Garantie für den Euro reicht nicht. Es muss auch eine Sozialstaatsgarantie für die Europäer geben. Wir wollen einen verbindlichen Beschluss, dass Sozialabbau zur Finanzierung der Krisenkosten ausgeschlossen ist. Was heute den Griechen zugemutet wird, trifft morgen uns.Ernst: We still can't vote for it. If, also in the consequence of the German attempt to help the Euro, other Euro countries like Greece are forced to conduct drastic social downsizing, cut pensions and wages, or raise the VAT, then we won't go along. A guarantee for the Euro is not enough. There must also be a guarantee of a social state for Europeans. We want a binding resolution that social downsizing to finance crisis costs is excluded. What Greeks are expected to put up with today will hit us tomorrow.
GA: Griechenland hat die Krise nicht mit ausgelöst? GA: Was Greece not a co-igniter of the crisis?
Ernst: Dafür sollen aber nicht die normalen Bürger bluten müssen, sondern Großbanken und Spekulanten. Wir stimmen keinem Modell zu, das die Konjunktur in Deutschland oder anderen Euro-Ländern abwürgt.Ernst: For that, however, it shouldn't be the normal citizens who bleed, but big banks and speculators. We won't agree to a model that throttles the economic recovery in Germany or other Euro countries.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 25th, 2010 at 04:25:28 AM EST
It needs to be given much wider exposure.  Have you considered submitting it for MSM publication?

Frank's Home Page and Diary Index
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 25th, 2010 at 06:00:53 AM EST
Thanks Frank! You mean submit it where for example?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 06:39:19 AM EST
[ Parent ]
Maybe the Guardian?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 25th, 2010 at 06:45:55 AM EST
[ Parent ]
How do you do that without appearing like a nut :-) ? "Hi I'm a blogger, and I've written this excellent (if I may say so myself) piece on the IMF's cluelessness about Greece, won't you please publish it?". How is it done?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 07:57:05 AM EST
[ Parent ]
Never having had an op ed piece published myself, I'm hardly an expert, but what I would do is:

  1. Give it snappy title: e.g. "IMF does Greece no favours" and maybe start with a quote from Stiglitz about how IMF in depth country reviews generally involve not much more than checking out the 5 star hotels.

  2. Edit it down to c. 2,000 words and use somewhat more "neutral" impartial language in the commentary.  The absurdity of the IMF report speaks for itself.  As you are not an internationally renowned expert like Stiglitz your opinion counts for little but your factual rebuttals count for a lot where you can cite authoritative alternative stats.

  3. Remember that your primary purpose is to debunk  popular and "serious" misconceptions about the Greek economy - particularly on wage rates, productivity levels and the "bloated" public sector.

  4.  Draw your international audience in by pointing out that Greece does not compare all that badly with quite a few other EU states, and thus they could be next for the misinformation and shock doctrine tactics.  Stress solidarity with Greece is therefore in their own interest.

  5. E-mail submission to every editor of every paper you can find an online address for - a scatter-gun approach.  You might find a few takers from editors looking for an alternative take on Greece or the Euro/ Sovereign debt crisis generally, but it is impossible to predict who and where and I suspect you might have as much luck with traditionally conservative/nationalist media as with left-wing liberal.


Frank's Home Page and Diary Index
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 25th, 2010 at 08:24:06 AM EST
[ Parent ]
All good points.

Use a serious mailadress, firstname.lastname@some free email service (for example gmail) works. And if you have a fancy title, now is the time to use it.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue May 25th, 2010 at 02:02:56 PM EST
[ Parent ]
I just wanted to weigh in quickly while reading more in depth later.

The lost competitiveness story for Greece has always rung hollow for me as well since Greece's two biggest sectors, accounting for half of GDP, are shipping and tourism. Third is banking, though it is smaller.

Nonetheless, all 3 sectors have improved since Greece joined the EU.

I have read numerous times since the crisis started that the euro has caused a loss of competitiveness in Greek tourism, as Greece is losing to cheaper destinations such as Turkey.

But until the recession, Greece was showing a marked increase in tourists over the previous decade. In other words, the euro brought more visitors. So, higher prices AND more tourists? How can this be a bad thing? Only if those increased number of tourists are somehow spending only on hotel, and spending much less on food, drink, trinkets, etc. Highly improbable, I should think.

Take it from me, who travels to Greece often enough, the numbers are not down and the prices are indeed much more expensive than before. I once made the mistake of grousing about 10 euro umbrella rentals on the beach, and the all-inclusive luxury resorts that seem to take customers away from the small family establishments, only to be ridiculed for preferring the dirty hippy days of the 70s and 80s. I admit to it and still liked it better then, but in no uncertain terms, the Greeks in the tourist trade do not.

Until the recession, shipping in Greece experienced its best decade ever. On Wall Street, you actually had traders following something called the Baltic Dry Exchange Index which tracks shipping rates. The costs of hiring a ship skyrocketed. Lots of Greek companies were pulling in dough. Again, they became very competitive.

In banking, Greek entities diversified and brought back notable profits from Turkey.

In short, by all appearances, it would seem that the euro has been very very good for Greece.

I imagine that Greece's agricultural sector has been hit; Greece still produces a notable amount of cotton, and that can't be a good thing when you're part of the euro.

As well, Greece has never really had much foreign investment; the presence of multinationals is negligible. So, it would not seem that Greece has suffered from international corporations uprooting for cheaper territory elsewhere. The largest international corporation is Coca-Cola Hellenic and it employs about 45,000 people.

About the IMF's 75% social spending figure (it adds gov't worker pay and pensions together), I have written on ET in the past about this number, and how funky it seemed to me. I will note however that Eurostat has the same exact number. If you take the number of Greeks taking a pension, assume a very high pension (20k a year) and add the number of Greek gov't workers, assume high salaries (25k a year) you still get to only half of the figure listed by Eurostat and the IMF. So, one can assume that buried in that statistic is a host of other costs which inflate it beyond the actual amount of money that makes its way to the citizenry. The IMF's numbers do agree however with Eurostat's numbers.

by Upstate NY on Tue May 25th, 2010 at 09:25:54 AM EST
Wages have risen, THEREFORE competitiveness has suffered and wages must drop again. It's self evident. No data to back it up is required. Any data that suggests otherwise must be wrong.
by Colman (colman at eurotrib.com) on Tue May 25th, 2010 at 09:27:58 AM EST
[ Parent ]
LOL, yes, well this comparison is only with the Eurozone. if you compare Greece to Indonesia, Greece might indeed be losing a bit, but we are still only 100 years removed from the horse and buggy. Somehow I think that Indonesia is not yet crowding Greece out of its traditional markets.

One more thing about the Eurointelligence article. The author takes his economics colleagues to task for claiming that Greece needs deflation in wages to make it more competitive. But he himself does not address part of his own article: "If we set the year 2000 equal to 100, then by 2009 Greece was at 122 while Germany was at 102."

He says that wage deflation won't solve competitiveness in Greece, and I buy that. But by his own argument, it seems that wage deflation is his remedy for Greece's fiscal crisis.

by Upstate NY on Tue May 25th, 2010 at 09:35:28 AM EST
[ Parent ]
I actually think they have no clue, so they're just making up shit as they go along. Alternatively, the proper solutions are simply outside their universe of discourse, so they fixate on things they can talk about.
by Colman (colman at eurotrib.com) on Tue May 25th, 2010 at 09:43:03 AM EST
[ Parent ]
I keep adding responses and yet I have to get going: if you read the IMF's site on Greece, it is plain as day that the Greek debt problem is not triggered by a restatement of false statistics.

The IMF page has dozens of reports all through the decade on the actual numbers and their impact on the Greek gov't budget, the high interest servicing, etc. And the numbers are not at all different from those reported in the restatement in 2009.

by Upstate NY on Tue May 25th, 2010 at 09:40:54 AM EST
[ Parent ]
As far as I can see, the only way to do this is to add up all social benefit costs to the wage and pension bill. This would include stuff like hospital equipment and new schools, along with disability pensions, unemployment benefits etc. If one includes government funding for the Social Security Funds (which theoretically, one shouldn't conflate with the pensions - these are management costs, past debts and constitutional guarantees mostly), one can reach 40% of non-interest public expenditure. I would be really interested in seeing some plausible explanation for the 70% number.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 09:45:04 AM EST
[ Parent ]
Include all the costs for things like supporting the scattered islands, subsidies for ferrys (?) and public transport, everything other than the two proper functions of government, property protection and military spending.
by Colman (colman at eurotrib.com) on Tue May 25th, 2010 at 09:49:16 AM EST
[ Parent ]
Colman:
everything other than the two proper functions of government, property protection and military spending.

Colman you are getting too good at this lol

good thing there's a snark macro, it'd be brutal without.

oh dear...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 25th, 2010 at 02:08:59 PM EST
[ Parent ]
Among young people 18-24 unemployment is already at a staggering 34% this month.

What's happening to numbers in further education? It's possible to have an increase in the number of people in that range employed and still have the unemployment % rise because more people are going into education rather than looking for work.

by Colman (colman at eurotrib.com) on Tue May 25th, 2010 at 09:30:51 AM EST
Those people in further education will end up "overqualified" and exhibited as evidence that the public education system must be dismantled.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Tue May 25th, 2010 at 09:48:20 AM EST
[ Parent ]
Given the problems the world faces in overpopulation, global warming, depletion of resources, energy limitations, war, etc., you would think that we'd be spending MORE on the one area that could actually solve some of these problems: education and research.

Economists can see beyond the numbers.

by Upstate NY on Tue May 25th, 2010 at 12:15:59 PM EST
[ Parent ]
If they can, they pretend they don't.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Tue May 25th, 2010 at 12:44:31 PM EST
[ Parent ]
What I have manage to find is that total employment has fallen dramatically in all age groups, including the 18-29 group. This is unusual, because despite the high unemployment in this category, employment numbers were fairly stable. I'll try to find the survey numbers, and I'll let you know.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 09:53:40 AM EST
[ Parent ]
Excellent job. Kudos to you.
by Euroliberal on Tue May 25th, 2010 at 03:13:27 PM EST
Really good piece, and all great counterpoints to the IMF's arguments.

However, your diary opens up a new dialogue about whether the Greek government should carry out the EU/IMF austerity plan which is actually distinct from the one about whether or not it really has to or can do it.  I think clearly it does not have to -- there are other options that could be less painful to various of the current or past beneficiaries of Greek fiscal policy.  But from the point of view of non-Greeks, particularly European non-Greeks but also the rest of the world as well, I think the IMF is doing a very good job of trying to compel Greece to do things that make the world a better place for everyone else, and that is, in fact, the IMF's principal mission in the world, neo-liberal or not.

The issue at stake here is that the Greek government, as a member of the EU, been compelled by its citizens, quite reasonably, to provide social benefits closer to those enjoyed by many larger and wealthier members of the EU polity of which they are members. But the structure of the EU, particularly the single currency, makes it difficult for the Greek government to deliver on those commitments with its own resources, thus Greece has essentially tried to compel either its creditors, or the rest of the EU, or both, to provide it with resources to do that. This situation is inherently contradictory -- Greek commitment to the EU project and what is essentially Greek policy to take from (largely EU) foreigners to give to Greek citizens -- so it naturally leads to political conflict and crisis.

The IMF's purpose is not primarily to help Greek citizens or the Greek government, contrary to what most discourse, including IMF discourse, on the matter seems to suggest.  Rather, it is to help provide for global financial and economic stability. Given the conflict over who gets what, when, and how that is going on today  in the Greek/EU/bankers drama, it seems like the IMF has a pretty good moral case at least (provided that everyone agrees, as Greece does so far, that the EU and the Euro are institutions worth protecting) for trying to compel Greece to implement policies that don't involve transfers of resources from the rest of us to Greeks.  

by santiago on Tue May 25th, 2010 at 05:15:21 PM EST
Very rosy outlook, if you ask me.

If the IMF were truly this beneficent, then you would think it would try to alter its modus operandi after one colossal flub after another.

If the IMF really wanted to insist that Greece change and become a better member of the union, it would not have pissed around the margins of the Greek economy by installing half measures (if you look at the IMF plan for Greece, it doesn't really make any sense) and instead created more permanent cuts that would put the country on better footing. Increased VAT, pensions cut when pensions are already at poverty level, this is nibbling at the margins, especially when Greece has purchased tens of billions if not hundreds of billions of armaments in the last decade.

I think Talos's article makes clear that Greek GDP, Greek tax revenue, is more than enough to sustain the rather meager salaries and pensions. So what exactly is this "transfer" of wealth?

Aren't we talking now about Greek gov't debt? If so, the first question that needs to be asked is, How did Greece build that debt?

But, as of yet, no one has answered that question with facts, least of all the Greeks. The current Greek gov't needs to come clean, because in the absence of facts from the current Greek gov't, the rest of the world is more than happy to fill in the details with speculation and half-truths or even outright lies. Read the IMF's document on Greece.

Lots of suppositions there, many of which contradict annual IMF assessments of Greece and prior analysis of the Greek economy inside the euro.

I think the current Greek government is not telling the truth for political reasons. They are absolutely avoiding the elephant in the room, and that elephant is corruption. What do they fear? The nation's political stability. But unless they carve out the cancer at the heart of their debt, the political climate inside Greece will not improve.

All the talk from outside Greece is simply platitudinous chatter until Greece comes clean.

by Upstate NY on Tue May 25th, 2010 at 05:34:55 PM EST
[ Parent ]
This has nothing to do with being beneficent.  This is, as are all political conflicts, a raw fight over resources, so the question is, on which side are you in this particular conflict?  (And I know you're Greek from past posts, so you might have more ambiguous allegiances than most of us.)

If Greek GDP, tax revenue, etc. were more than enough to sustain Greek pensions without IMF help, then there wouldn't be the crisis at all, would there? The problem is that it when you tie your policy options to a larger group like the EU, which means that you transfer your power to that larger group, you limit your ability to solve domestic conflicts over resources, and that is what has occurred because of Greek adoption of the Euro as its currency.  Because Greeks are unable to increase taxes on the wealthy exclusively, and because so many of the rest of us don't think we should be on the hook for Greek consumption smoothing, the IMF is actually doing its job for its constituents -- the rest of us -- by compelling Greece to lower its consumption so we don't have to lower ours. The question is, should it do its job?

by santiago on Tue May 25th, 2010 at 05:56:49 PM EST
[ Parent ]
Actually, I'm an American of Greek extraction, and also an EU citizen via Italy!!

"If Greek GDP, tax revenue, etc. were more than enough to sustain Greek pensions without IMF help, then there wouldn't be the crisis at all, would there?"

I think this is where we disagree. It's as though you believe that only social spending could get a nation in fiscal trouble.

by Upstate NY on Tue May 25th, 2010 at 06:09:35 PM EST
[ Parent ]
No, military spending can also get a nation into fiscal trouble, but that isn't the problem in Greece right now.  

And actually, its not that any type of spending causes the trouble, but rather it is an inability of a country to resolve, internally, its own political disputes over resources that get countries into fiscal trouble. Given that one part of a polity wants more spending or less taxes, if it can't convince/compel another part of the same polity to pay for it it means the spending/tax policy is fiscally unsustainable and will eventually result in a crisis of some kind, either for that particular country, or, if the country is big enough, for others too.

by santiago on Wed May 26th, 2010 at 12:39:55 PM EST
[ Parent ]
Economics is political. Nobody could have foreseen...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 12:53:10 PM EST
[ Parent ]
It may not be the problem in Greece right now, but I would wonder if it has been the problem all along.

We're talking 5% GDP in purchases and 2.3% GDP in weaponry service.

Over a decade, that's a big chunk of change.

by Upstate NY on Wed May 26th, 2010 at 01:19:41 PM EST
[ Parent ]
This has nothing to do with being beneficent.  This is, as are all political conflicts, a raw fight over resources, so the question is, on which side are you in this particular conflict?

Given that a confederation (nevermind a federation) is not sustainable between countries of widely disparate wealth (at least not if it wishes to retain a semblance of democracy), I think I can safely say that I'm on the side of preserving, deepening and widening the European institutions and integration and greater transfers from richer EU members to the median Greek (just as I am on the side of greater EU transfers to the median (North) African resident).

"Old Europe" knew (or should have known) full well what we signed up for when it went for larger and deeper integration over the past two or three decades. Yes, the European Union could jettison the Mediterranean... If we want to have between ten and twenty politically and economically unstable third-world countries right in our back yard. Me, I have a whole slew of reasons to Not Want that, only some of which are humanitarian and altruistic in nature.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 25th, 2010 at 06:36:21 PM EST
[ Parent ]
I think what has happened with the Greek debt is becoming clearer:

The Greek government spent around the EU average and received 5% of GDP less than the EU average for two decades at least. This sustained a debt which was bearable as long as the economy was perceived as expanding. Greek national debt was at 20% of GDP in the 1980s, and expanded to 80% in 1990 and 120% in 1993 (this was partly due to developing a social welfare system, a socially productive debt). It has remained at these levels more or less ever since.

So it has to do with not gathering the revenue required. Not collecting enough taxes however is not due to corruption as a flaw of the system. Its a feature not a bug. The way a corrupt political and economic elite and the whole two-party system could create the social alliances it needed to legitimize itself (and undertax itself BTW), was to
a. bribe the professional classes and the government bureaucracy through gaping tax loopholes and associated corruption,
b. develop a clientilist system in which public employment was some sort of prize for the party faithful and their families
c. control the media, as thoroughly as money can

This was a very inefficient system as far as creating  decent social services is concerned, it debauched social relations and was not sustainable in the long run. This 45% of GDP spent, bought few and inefficient social services and a lot of illegal private gains.

This system might be dissolving at this moment (for quite external reasons mostly), but it seems to be preparing some even more oligarchical solution in its place. An impoverished and broken population is not conducive to a democracy. This is why it is important for a progressive alternative to appear if not to dominate in the short-term, at least to create a pole around which future hope can be organized. This BTW is not and cannot be simply a Greek project, it has to be part of a similar paneuropean movement.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 06:40:20 PM EST
[ Parent ]
a. What resources would be given away if the EU through some mechanism that might or might nor include the ECB lent Greece at a reasonable rate, such that 1.the lender(s) would make a decent profit and 2. the Greek budget could sustainably guarantee the eventual repayment of most or all loans, something which is very iffy at this point if the IMF/Eu plan is followed as is.
b. I'm not sure I understand why the issue is Greece, or only Greece, or mainly Greece any longer. There is a sustained attack on both the Euro and the European social model, which started in Greece due to the pathologies of Greek development, in the same way that lions start picking of buffaloes starting from the weakest.
c. Street riots and general societal havoc are more contagious than people think.
d. Unless one defines the "world" as Greece's financial lenders who bet on a losing horse and now are trying to sell it in order not to lose their money, I can't see how the world stands to gain by Greece's default.
e. Greece was following a path this past decade, that was hailed by all, including the EU and the IMF as the correct one, and which led to continuous and substantial growth for a decade and a half. No one, now complaining, disapproved at the time. People who insisted that a debt bubble is no way to build a stable economy were ridiculed or marginalized because they didn't understand the New Ever-Expanding Economy worked. In fact even in late 2009, lenders were ready to lend Greece at very low rates: at 4+ % the debt was easily sustainable.
f. Most Greek citizens have seen precious little of the money involved as any sort of benefit. German arms dealers, Lockheed Martin, Electronics giants (such as Siemens caught red-handed bribing Greek officials, yet still allowed to bid for Greek government contracts), and all sorts of other major corporations, saw much more of it.
g. Greece is an abstraction. It's not Greece that is being asked to pay up. It is its working class. The elites have sent their money to Swizerland, Cyprus, or bought Real-Estate in the poshest parts of London.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 05:55:26 PM EST
[ Parent ]
d. Unless one defines the "world" as Greece's financial lenders who bet on a losing horse and now are trying to sell it in order not to lose their money, I can't see how the world stands to gain by Greece's default.

Greece's lenders would be hurt by a Greek default like they are being helped by the bailout.

In fact, a Greek default would be a good thing, macroeconomically.

Maybe the EU could declare a debt jubilee. All EU debt would be null and void. Anyone made insolvent by this move would be made whole by the ECB.

Given the amount of circular debt within Europe (where A owes B owes C) the cost of this would be rather smaller than the 200% of EU GDP outstanding as debt.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Tue May 25th, 2010 at 06:00:06 PM EST
[ Parent ]
Think of it this way:

If Greece does not get assistance from the EU/IMF, what can its government do?  It can (and I argue should anyway) default on its debt, making its bankers pay for their own bubble-causing decisions.  And it can also leave the EMU, going back to its own currency but in the process possibly threatening the viability of the Euro and to a lesser extent the EU itself, as political institutions.  Given that alternative, it's not unreasonable for Greece to want outside assistance or for others to provide it, but it's also not unreasonable for the providers of that assistance to ask for guarantees of some kind to back of the command over resources that they put at risk by assisting Greece.  So the dynamics of power and collective action kind of limit what is possible here.  The question for non-Greeks is, how much is Greece participation in the Euro worth to us?  For EU citizens it might be more, but for others represented by the IMF it is probably something much less.

by santiago on Tue May 25th, 2010 at 06:06:10 PM EST
[ Parent ]
"Its bankers"?

Really, in order to have a discussion, we need to begin from a basic set of facts, such as... 85% of Greek debt is held by foreign banks.

by Upstate NY on Tue May 25th, 2010 at 06:12:24 PM EST
[ Parent ]
Which is an argument for default.  Greece should just refuse to pay its bankers, like hundreds of countries have done before, mostly with little negative consequences.
by santiago on Wed May 26th, 2010 at 11:56:52 AM EST
[ Parent ]
Many have argued that. But, of course, Greek politicians must really care about EU solidarity and remaining in the euro.
by Upstate NY on Wed May 26th, 2010 at 12:32:10 PM EST
[ Parent ]
EU what!?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 12:35:14 PM EST
[ Parent ]
great diary, talos, it really eviscerates the IMF case, and the hypocrisy, (that the present financial system holds in its very DNA), is laid bare in all its tawdry detail.

capitalism has become a giant press, in which the public is squeezed, screwed tighter by the relentless drive for economic profit in the financial realm.

this iconisation of numbers leads to a terrible degradation of humanity, and Greece is, as Upstate NY so clearly states, just the weakest wildebeeste in the europack, so is the first crucible for what seems to me to be an experiment in pure post-deomocratic oligarchy, supplied with fascist overtones by its bloated fatcat associations with the arms industry and shipping magnate profits.

bankers love war above all, and this looks like a set-up to create one, as history shows us when a country is screwed too far, it lashes out against its neighbours, (as a distraction from its domestic turmoil.)

add that to a surfeit of weaponry and a crumbling social compact and you have the ingredients for massive mayhem.

the banks always win, and never get blood on their hands directly.

thankyou for a thoroughly professional diary, it brings badly-needed clarity to the discussion; the comments are great too.

international capital is remaking the world through creative destruction, whether/how we can live with the results is another story... as greece goes, so will we all, italians are watching this unfold very attentively.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 25th, 2010 at 06:54:05 PM EST
[ Parent ]
It's always the working class, and increasingly the middle class, which is expected to pay up for - what, exactly? Someone else's yacht?

The constant spin and rhetoric are necessary because if they stopped for long enough to give people time to think, the outcome would literally be revolutionary.

Great diary, by the way.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 25th, 2010 at 08:43:20 PM EST
[ Parent ]
Rather, it is to help provide for global financial and economic stability.

And herein lies the problem: When the reach of the capital markets exceed their grasp to the extent that it does today, you can provide for either economic or financial stability.

Economic stability is best provided by telling the capital markets to fuck off and die and using the power of the sovereign state to underwrite industrial development until the capital markets have (been) rebooted and are back online in a less malign version.

Obviously, telling the capital markets to fuck off and die does financial stability no favours.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 25th, 2010 at 06:21:16 PM EST
[ Parent ]
JakeS:
Obviously, telling the capital markets to fuck off and die does financial stability no favours.

Greeks `skimp' while IMF `stinks' in Malaysia

Former Malaysian Prime Minister Tun Mahathir Mohamad, who rejected International Monetary Fund policies during Asia's 1997-98 financial crisis, speaks on the Greek debt crisis.

Greece agreed this month to cut wages and pensions, raise sales, fuel and alcohol taxes and overhaul the state-run pension system in return for 110 billion euros (US$136 billion) in emergency loans from the European Union and the International Monetary Fund.

Mahathir made these comments in an emailed response to queries from Bloomberg.

"The IMF hasn't learnt from its mistakes. Its solution is still the same, that is extending loans for payment of debts and making recipients indebted to the IMF instead. The Greeks will now be debtors to the IMF and will have to skimp and stint in order to repay the IMF loans. I'm glad the IMF now agrees that in certain cases capital controls are okay. But the situation in Greece is not similar to Malaysia. They are euro-poor. We were poor because our currency was devalued."

On why Malaysia rejected the IMF:

"The IMF standard formula for countries in debt is to bail them out. The Greeks would simply be using the IMF euros for paying their debts to the foreign banks and end up owing the IMF the same amount of money. To repay the IMF loans the Greeks would have to accept becoming poor with less earnings for very many years. Malaysia rejected borrowing from the IMF precisely because of this. We would have had our economy run by the IMF whose principal interest is to get back the money it lent."

On Malaysia's answer:

"We bailed out our companies, but that worked simply because we applied currency control with a fixed exchange rate."

On over-spending:

"Whatever solution for a country in debt must involve accepting becoming poorer. Greeks had been living on borrowed money. The wealth they enjoyed was not theirs. Even Malaysia had to accept being poorer when we fixed the exchange rate at RM3.80 to US$1 from RM2.50 before the crisis. Our GDP and per capita income were lowered in US dollar terms.

All the countries of the world must accept becoming poorer because they had all been spending money they did not have. Bailouts will not restore the wealth enjoyed before. Much of the profits earned will go towards paying the bailer. The huge profits by Goldman Sachs, for example, largely belong to the government, not the shareholders."

On the IMF's reputation in Asia:

"I cannot say for other countries, but certainly the IMF still smells bad in Malaysia. But it is likely that it is not yet smelling like roses in other Asean countries."


"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Tue May 25th, 2010 at 07:29:53 PM EST
[ Parent ]
What Mahathir is arguing here is that Greece withdraw from the Euro.
by santiago on Wed May 26th, 2010 at 01:18:56 PM EST
[ Parent ]
Actually, that it suspend the EU's internal market rules while staying in the Euro:

On Malaysia's answer:

"We bailed out our companies, but that worked simply because we applied currency control with a fixed exchange rate."

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 01:52:51 PM EST
[ Parent ]
Yes, that's certainly an implication applicable to Greece and its relationship with the EU.  But what Mahathir actually says here is that they didn't maintain a fixed currency. Rather, that they devalued it:

Even Malaysia had to accept being poorer when we fixed the exchange rate at RM3.80 to US$1 from RM2.50 before the crisis. Our GDP and per capita income were lowered in US dollar terms.

By Mahathir's own recollection, it's not the fixed part that allowed Malaysia to cure itself without IMF austerity.  It's the fact that it retained it's own monetary policy, which Greece doesn't have anymore, like Krugman keeps saying.

by santiago on Wed May 26th, 2010 at 03:23:33 PM EST
[ Parent ]
My friend David Dayen, who used to write with me at Calitics and now writes at FireDogLake, posits this argument - that Greece's problems are similar to California's, in that both have had artificially low levels of taxation in order to favor the wealthy, undermining the entire economy:

California Is Not Like Greece; Greece Is Like California | FDL News Desk

Greece simply does a poor job of revenue collection, and there are many reasons for this. One is that they have a large shadow economy, accounting for close to one-quarter of all economic activity. Second is that they have an unusually high number of tax evaders, and their collection programs haven't been able to crack down on them (unreported swimming pools are apparently a major problem). And third is their tax rates are simply too low to match their middle-of-the-road spending (at least for Europe).

Basically, this sounds like California in many respects, but not in the typical sense seen in newspapers and on talk radio. In fact, like California, Greece has a structural revenue problem. Both locations suffer from an underground economy, whether from immigration or deliberate tax evasion (which is why a path to citizenship would only boost the economy and reduce the deficit by bringing that underground economy out of the shadows). And both have tax cheats. But at the root, both Greece and California do not collect the revenue to finance the goods and services their populations demand. Nor are these demands out of line relative to those similarly situated - at this point, California spends less on K-12 education than any other state in the union; they are the only state without an emergency poison control center; they have the second-lowest amount of public employees per capita in the nation; and so on. This year they may end their welfare-to-work program. In both cases, the rich refuse to pay their fair share; in Greece, they basically shelter it, and in California, they are protected by legislative rules that allow a small majority to veto the budget and tax increases.

So yes, Greece and California are alike, but in exactly the opposite fashion that commentators typically opine. And so this drive to austerity misdiagnoses the real issue, whether in Sacramento or in Athens.

Is there any basis to this claim? If so, it would seem to be further evidence that the problem here isn't social democracy or a generous "welfare state" but instead tax giveaways to the wealthy.

And the world will live as one

by Montereyan (robert at calitics dot com) on Tue May 25th, 2010 at 06:04:08 PM EST
I read that and responded to him like so:

I think the overspending story is overhyped, but so is the tax evasion story. In order to look at Greece's 25% tax evasion as the problem, you need to put it in context. Greece is at 25%, the Eurozone is at 20%, the USA is at 17%, so even if Greece did better on collection, you can't assume it would go from 25% to 0% as so many have.

The vast majority of the money is lost due to political corruption. Greek tax revenue per capita is $12.7k in US dollars (108 billion euros in tax revs divided by less than 11 million people) which compares to $8.6k in the USA. Greek per capita GDP is also a lot less than in the USA. Conclusion: Greeks pay more taxes than Americans in REAL money though they earn less. Tax evasion is simply a measure of tax that SHOULD have been paid but wasn't, and when you take into account the many variables country to country (i.e. differential tax rates) it's impossible to compare rates of tax evasion. In some countries you can have a very low tax rate (for instance, 15% capital gains in the USA) that allow people to LEGALLY avoid taking a big tax hit. The important thing to really look at is per capita tax revenue, because that tells you about relative taxation, especially when you're comparing small countries like Greece that are loaded with mom-and-pop small businesses, countries that have a VAT tax that tends to drive taxes underground, against countries with huge multinational corporations.

It's too simplistic to look at Greek tax evasion (at 25%) and say, well, they are losing $30 billion a year in tax revenue.

There seems to be a professional class in Greece that ignores its responsibilities, but nonetheless, someone is paying tax revenues for them to reach $12.7k per capita. The biggest economic sector in Greece is shipping, and shipping profits are totally untaxed for obvious reasons (ships can register anywhere) though there is a tonnage tax. It could be that employees in the shipping companies receive non-salaried compensation that is then taxed at some other rate, and this would explain why there are so few declared high salaries in Greece. Otherwise, I'm at a loss to explain the tax revenue per capita rate unless it ALL falls on the middle class.

The Brookings Institution did a study that showed Greece would have a surplus were it not for corruption.

by Upstate NY on Tue May 25th, 2010 at 06:15:30 PM EST
[ Parent ]
A poor job of revenue collection IMHO is quite on the money, and as I mention above it is a systemic poor job of revenue collection.

In fact if the deficit was the problem, then it should be possible to eliminate it in a few years simply by capturing tax-evasion

A few days ago the associate finance minister revealed that taxes certified, yet owed to the Greek government are on the order of ~30 billion Euros, of which 20 billion Euros are owed by 8000 people (that's almost the size of the current deficit). He further claimed that total tax evasion is around 40% of GDP - that's around 95 billion Euros. In fact the National Bank of Greece has recently added up tax-evasion and black economy to around 50% of GDP [in Greek]. The deficit could be turned around, it seems if this was simply a technical issue, simply by a stricter tax evasion detection and tax inspection mechanism (some small parts of which, we see now hastily implemented) and serious reform in public spending allocation, especially in the disgustingly corrupt and inefficient public health system, where corruption and mismanagement easily cost 2% of GDP per year - never mind the enormous and piling hospital debts. (Or it would were not the Greek GDP collapsing, thus reducing real revenue, taxed or not). This, in fact was what the Governor of the Bank of Greece, Yiorgos Provopoulos was urging in April 2009, a year before the crisis exploded, in his annual address:

"[To blunt the effects of the crisis, we need..] A fast and deep correction of the fiscal debt so that it disappears by 2012 [at the time the officially projected deficit was 6% of GDP, but Provopoulos must have had seen by that time evidence that it would reach at least 9%]. This is feasible, if part of the enormous tax-evasion is captured and, especially, if waste is cut substantially and public expenditure becomes more productive...
... We need significant primary surpluses (of the order of 4,5-5% of GDP) if we are to  reign in the public debt in order to diminish the ratio of debt to GDP to the reference level of the Maastricht treaty (60%), within a reasonable time-frame of, say, 10 years... Establishing numerical limits for expenditure, reinforcing the transparency and quality of fiscal statistics, limiting tax andsocial security contribution-evasion can play a role in deleting the deficit"

At the time, Provopoulos might not have realised that we were dealing with a 13 percent deficit, by it seems quite probable that he knew it was close to 9%.


The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Tue May 25th, 2010 at 06:51:49 PM EST
[ Parent ]
95 billion plus 108 billion in tax revenues collected would equal 203 billion.

That's about 19k euros per capita.

Something is wrong in those tax evasion projections. Greece would be collecting as much as 3x more per capita in REAL currency than is collected per capita in the USA.

It's a high amount, and it would be equivalent to the highest amount in Europe, Sweden, in real terms, but it would also mean the absolute highest amount in Europe in terms of per capita GDP.

On another topic, I found this chart as I was looking up stats on Sweden:

http://www2.parl.gc.ca/content/LOP/ResearchPublications/images/prb05107_1-e.jpg

It shows that the country with the highest government expenditures happened to have the lowest debt to GDP (Sweden) while the country with the lowest amount of government expenditure (Japan) had the highest amount of debt to GDP.

by Upstate NY on Wed May 26th, 2010 at 12:28:43 AM EST
[ Parent ]
No, the 95 billion obviously includes taxes due from previous years. It almost certainly includes the 30 billion in unpaid taxes I mentioned (that's over the previous decade) and possibly a serious amount of VAT owed but never collected over the whole period.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed May 26th, 2010 at 03:59:57 AM EST
[ Parent ]
I see, my mistake.

50% tax evasion is still a huge estimate.

by Upstate NY on Wed May 26th, 2010 at 07:25:48 AM EST
[ Parent ]
I note that in a second instance the IMF states that:

Since wages and social benefits constitute 75 percent of total government expenditure, this means that the public wage and pension bills have to be reduced

Was this there all along? Anyway this again is not true literally, if the Eurostat numbers are anything to go by. It turns out that wages+pensions and +social services are around 72,2% of non-interest expenditure, compared with 71.5 approximately for the Eurozone as a whole and 75.5% in Germany. If this is said to explain why the cuts are inevitably on wages, pensions and services, then it ignores that 40% of public employees have temporary contracts and not renewing these contracts (or a large part of them) would also have the desired effect (I'm not even getting into the hospitals mess, an area where the relevant budget could be slashed in half and services improved if one had a plan). Not to mention of course that raising revenue could do the trick nicely as well. As we have seen above.

This literally false and certainly misleading statement is also mentioned by D. Strauss-Kahn himself in an interview of his posted in the IMF's site.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Wed May 26th, 2010 at 12:20:17 PM EST


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